BLUE WHALE GROWTH: The fund’s forecast… a decline in US big tech stock prices
Investment fund Blue Whale Growth has made big money for investors since launching more than seven years ago – and manager Stephen Yiu is determined to continue its impressive track record.
The £1.2bn fund, backed by billionaire Peter Hargreaves, has delivered a total return of 162 per cent since its launch in September 2017 – equating to an annual return of more than 14 per cent, after fees.
Yet Yiu is not resting on his laurels. His ambition is to achieve an annual return of 15 percent, although not in a straight line.
Although he has a tight portfolio, consisting of just 26 global stocks and one that always remains fully invested, Yiu is not afraid to make big decisions.
Unlike some global fund managers, Blue Whale Growth is light on the ‘magnificent seven’ US stocks – big drivers of the US stock market in recent years – and big on ‘quirky’ companies that it believes have businesses capable of any economic slowdown or crisis. sharp market corrections.
Currently, the fund only owns shares in the seven beautiful stocks Nvidia (8 percent), Meta (3 percent) and Microsoft (1.5 percent).
“We do not own Alphabet, Amazon, Apple or Tesla,” Yiu says.
“In fact, we are overweight Nvidia and underweight the other beautiful six.”
This time last year, the respective stakes in Nvidia, Meta and Microsoft stood at 9, 4 and 8 percent.
Yiu believes the “story” could change next year for the beautiful seven – with the exception of chipmaker Nvidia – as revenues are eroded by massive spending on artificial intelligence (AI).
This, he said, could lead to corrections in their stock prices and a “year of reckoning” for funds that track the Standard & Poor’s 500 Index, of which big tech stocks are a major component.
Unlike active funds like Blue Whale Growth, such tracker or passive funds cannot reduce their exposure to the big tech giants before a sell-off occurs.
“They should keep the S&P 500,” he says. “We may see a rejuvenation of investor interest in active funds in general next year.”
Blue Whale Growth pays attention to the AI theme that goes beyond the beautiful seven. It has significant stakes in the American companies Broadcom (the largest stake) and Vertiv. “Broadcom,” says Yiu, “could be the new Nvidia when it comes to outperforming the rest of the market.”
Yet Yiu also has large stakes in companies he describes as “idiosyncratic” – companies that should grow regardless of prevailing economic conditions.
Among them is US-listed sports betting and gaming company Flutter, which Yiu says is on an “amazing journey” as more US states legalize sports gambling. “American consumers love their sports and their gambling,” he adds.
Other idiosyncratic holding companies include the German Sartorius and the US-listed Danaher, both of which are making waves in the field of bioprocessing.
There is also US tobacco stock Philip Morris, which has diversified into nicotine pouches and smoke-free alternatives to conventional cigarettes.
Blue Whale Growth’s success means that, provided the fund ends the year above £1 billion, it will return one percent of annual management fees to investors.
Most investors in this fund pay an annual management fee of 0.75 percent, so the discount reduces this fee to 0.7425 percent.
A further one per cent will be cut if – ‘when’ (Yiu’s word) – the fund reaches £2 billion.
While three-quarters of the fund’s assets are exposed to US-listed equities, only 40 percent of income from all investments comes from the US.
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